Running a State Health Insurance Marketplace

In the era of the Affordable Care Act, consumers in the U.S. can now purchase private health insurance in 14 state-based marketplaces (SBMs), along with the federally facilitated health insurance marketplace (FFM). For most of 2015, I was the director of Rhode Island’s SBM, known as HealthSource RI, which more than 32,000 Rhode Islanders use to purchase health insurance.

I’d like to share what I learned while leading an SBM, to help other states as they navigate the health insurance landscape and, more broadly, to inform health-system leaders, employers, and policy makers about the challenges SBMs face and the solutions they’re developing.

Let me start with a few basic facts about health insurance marketplaces:

Subsidies for low- and moderate-income Americans. Roughly 80% of individuals and families who bought their health insurance through an SBM or FFM in 2014 received a tax credit to defray the cost of premiums and out-of-pocket expenses. The average credit was The average credit was $270 per month. In King v. Burwell, the U.S. Supreme Court decided that tax credits are available in all states, not just those with an SBM.

New enrollment resulting from marketplaces plus Medicaid expansion has reduced the uninsured rate nationally by 35%, and in some states by more than 50%.”

Fewer uninsured people. Since 2013, an estimated 16.4 million Americans have gained health insurance coverage, 9.9 million of them through marketplaces. The marketplaces also have played an important role in referring eligible Americans for Medicaid coverage. New enrollment resulting from marketplaces plus Medicaid expansion has reduced the uninsured rate nationally by 35%, and in some states by more than 50%.

A new consumer mindset. Marketplaces allow people to do apples-to-apples comparisons of health insurance products and prices through an online portal. California’s model is perhaps the most influential: It has affected prices and choice in the market by standardizing plans and aggressively negotiating insurance rates.

With these fundamentals in place, state-based insurance marketplaces have nonetheless faced notable tests of their strength and endurance.

Financial Challenges

Initial funding for SBMs came from the federal government. By January 1, 2015, all state-based marketplaces were expected to replace federal funding with state-level financing. By June, all SBMs except Hawaii’s had reached that goal. States took a variety of approaches to raising the funds, but most have relied on some form of premium tax, user fees for enrollees, or both.

Rhode Island funds HealthSource RI through a combination of a state appropriation and a tax on health insurance premiums paid by individuals and small businesses. In the long run, we will be expected to rely entirely on the revenue raised from the tax on insurance premiums. In effect, budget growth will have to be supported by premium growth, which means enrolling more Rhode Islanders to sustain the organization. We also must reduce spending on our exchange by almost 80% between state fiscal years 2015 and 2017. This reduction will affect all of our operations, including staffing, customer service, outreach, and marketing. It’s the classic “doing more with less” scenario, but we’re up to the challenge.

Technological Challenges

Both the FFM and the SBMs have had to overcome major operational hurdles. Rollout in late 2013 was rocky for the federal exchange (and for some state exchanges when they first launched). By the second open enrollment period, in late 2014, the FFM had vastly improved website functionality, as had most states.

I don’t think anyone involved in crafting the Affordable Care Act foresaw the complexity of the financial transactions associated with running a state-based exchange.”

I don’t think anyone involved in crafting the Affordable Care Act foresaw the complexity of the financial transactions associated with running a state-based exchange. To fulfill the duties of an SBM, a state needs an information system that collects income and other demographics from customers, records their choice of health insurance plan, validates their immigration status, determines the tax credit for which they might be eligible, calculates the resulting net premium they owe, transmits that information to private insurance carriers and multiple federal agencies, updates the information as circumstances change throughout the year, accurately recalculates the tax credits and premiums, retransmits those recalculations to the relevant parties, and produces an annual tax form that accurately reflects all of this activity. That is no small set of tasks, to be sure.

In Rhode Island, we faced the challenges of connecting with federal data sources, as well as resolving inaccuracies in premium and tax-credit calculations and incorrect coverage dates for our customers. These problems required significant manual work-arounds, cost more money than anticipated, and caused major hassles for some customers. Take, for example, customers who showed up at a doctor’s office only to learn that they had an invalid insurance card, even though they had paid their premium. In such cases, we had to manually fix the customers’ accounts, on an emergency basis, to reflect the appropriate coverage.

Some technological challenges remain for all marketplaces in 2016, but in Rhode Island we have largely worked through them. Each month has brought progress in streamlining the complex electronic transactions that make a marketplace run.

What’s Next?

Every director of a state marketplace faces ongoing challenges. Here are the most pertinent tests that lie ahead, with specifics about how Rhode Island plans to pass them:

In facing all of these challenges and devising practical solutions, both the federal and state-based health insurance marketplaces will continue to play a vital, potentially growing role in improving the American health care system.”

Further reducing the ranks of the uninsured. As the target population gets smaller, the outreach and enrollment effort must become more targeted but no less effective. In Rhode Island, we are forming stronger partnerships with community-based agencies like health centers, other state agencies, schools, and even CVS Health (which is headquartered in our state) to efficiently and effectively find people who might be eligible for reduced-cost or no-cost coverage.

Improving customer service. Technological problems have, in many cases, strained the customer experience. We will continue to strive for improvements in 2016 and beyond. In Rhode Island, we have greatly simplified our website so that customers are less likely to get lost or confused. We are working with our agency of human services to better serve Medicaid-eligible customers, who are the majority of people who use our website or phone us. And we have improved our system for triaging customer questions and problems so that they are resolved in a timely, definitive manner.

Fostering innovation. SBMs have started to lower the cost and improve the value of health insurance coverage. Definitive data are not available, but results from a Kaiser Family Foundation study show low rates of premium growth in states that have SBMs, and even year-over-year reductions in states such as California and Rhode Island. SBMs are likely to play a larger role in this effort as they work with other major health insurance purchasers, policymakers, and regulators to add innovative products to their shelves while influencing health insurance rates.

Supporting small businesses. SBMs are required to offer coverage to small employers. Rhode Island has had real success in offering new products and services to small employers, as we aim to stem erosion in employer-sponsored health insurance coverage. We now offer a “full-choice” model, whereby an employer can sign up for coverage, identify the amount it is willing to contribute to its employees’ insurance, and enable those employees to choose among dozens of plans at various levels of cost.

In facing all of these challenges and devising practical solutions, both the federal and state-based health insurance marketplaces will continue to play a vital, potentially growing role in improving the American health care system. We all will do a better job — and more quickly — if states share their ideas and learn from one another.

This article originally appeared in NEJM Catalyst on December 15, 2015.